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Over the strenuous objection of a government prosecutor seeking to protect the criminal case against Martha Stewart, a federal judge has refused to delay the depositions of several key witnesses in related civil litigation against her. Prosecutor Karen Seymour, head of the Criminal Division of the Southern District U.S. Attorney’s Office, was allowed to intervene last week in the civil cases against Stewart, which were filed in the aftermath of the ImClone Systems Inc. insider trading scandal. Seymour argued that allowing the prompt depositions of 15 people in the civil securities fraud cases would give Stewart’s criminal defense lawyers an unfair preview of the obstruction of justice case, set to go to trial in January. But Judge John E. Sprizzo rejected Seymour’s request to block the depositions at a Sept. 30 hearing, saying he was not “going to keep this civil case hanging in the air,” even though Seymour said the equities of delaying the depositions tipped in favor of the government. The judge also said the criminal case against Stewart, which is before another judge, was not the “strongest,” and that the government had weakened its argument for a stay by the public statements made by U.S. Attorney James B. Comey about the criminal case at the time of the indictment. “The U.S. attorney went out and made a public pronouncement about this case,” Judge Sprizzo said. “He put it into the public media spotlight. I saw him on television back in June, giving an hour press conference.” “That’s correct,” Seymour answered. “So you live by the sword, you die by the sword,” the judge said. In the criminal case, Stewart is charged with securities fraud, two counts of making false statements, obstruction of justice and conspiracy to obstruct justice for stonewalling an investigation into her sale of almost 4,000 shares of ImClone stock. Stewart sold the stock just as her friend, ImClone Chairman Sam Waksal, was having family members unload hundreds of thousands of shares on the eve of negative news from the Food and Drug Administration about the company’s cancer-fighting drug Erbitux. Stewart’s reaction to the investigation and her public statements about her role in the affair prompted plaintiffs’ lawyers to sue her in civil court after the drop in the stock price of her own company, Martha Stewart Living Omnimedia Inc. Seven cases, which name Stewart and some directors of her company, claim investors purchased the shares at artificially inflated prices. They have been assigned to Judge Sprizzo under the consolidated class action Lemon v. Stewart, 02 CV 6273. There are also a series of civil cases in other jurisdictions around the country, most of them in the preliminary stage. A Delaware Chancery Court judge dismissed one of those cases last week. The securities fraud charge in the criminal case is somewhat similar to the civil case against Stewart, with prosecutors alleging that Stewart made false or misleading public statements about the ImClone matter to the detriment of investors in her company. Defense lawyers Robert Morvillo and John J. Tigue, of Morvillo Abramowitz Grand, Iason & Silberberg, on Monday asked Judge Miriam Goldman Cedarbaum to dismiss that charge, calling it an unprecedented expansion of criminal liability under the securities laws. Seymour’s intervention was the latest in a series of similar moves made by assistants for Comey, who face the challenge of prosecuting major corporate scandals that are running parallel to civil cases prompted by the same conduct. The U.S. Attorney’s Office has had success in the past in obtaining stays in civil proceedings that might affect criminal cases, including in the bankruptcy case involving Adelphia Communications Corp., whose founder and CEO John Rigas and two sons have been indicted. Seymour told Sprizzo on Sept. 30 that “particularly where obstruction of justice is alleged as the crime, where there has been tampering with actual evidence, there is a very real risk that defendants can tailor their testimony and their defense around the facts by obtaining a preview to the factual assertions.” Stewart is accused of ordering an assistant to alter a phone log as investigators with the Securities and Exchange Commission focused on her ImClone sales. KEY WITNESS Seymour also mentioned another allegation concerning a key witness on the list, Douglas Faneuil, the assistant to Stewart’s broker at Merrill Lynch Co., who took the phone call from Stewart before the shares were sold. Faneuil pleaded guilty to a misdemeanor in October 2002 for accepting gifts, allegedly from Stewart’s co-defendant and former Merrill Lynch broker Peter Bacanovic, to keep the true story from investigators. Seymour told Sprizzo that the tampering and the alleged payments to Faneuil made a stay of depositions even more important. She characterized the payments to Faneuil as witness “intimidation through economic coercion.” But Sprizzo questioned whether the government had any evidence “to support intimidation in this case.” “You have already set it up for the press about what your case is all about,” Sprizzo said earlier in the hearing. “You went well beyond the indictment. Mr. Comey gave a very long answer to the questions, pretty much laid it out, about what a fraud she was, and what an awful thing that she did in obstructing justice.” PRESS CONFERENCE Despite Sprizzo’s comments, Comey made it clear at the sole press conference he held on the Stewart case following her indictment that he was not going into the details of the case. The U.S. Attorney made brief comments after outlining the charges, including the statement that Stewart was not being prosecuted for “who she is” but for what she had done. A stay had already been granted for Stewart in the civil case, Seymour said, and she was merely requesting “limited” stay on the depositions of about four and a half months. Sprizzo, who served five years as an Assistant U.S. Attorney in the Southern District in the 1960s, said he had “seen a lot more serious obstruction cases.” “This is not the strongest obstruction case I have ever seen,” he said. “Just going by your own U.S. attorney’s comments on it. This is not John Gotti.” Seymour said Stewart would be getting “an even greater opportunity” to tailor her case “if the government witnesses are allowed once before the criminal trial to testify.” “It all depends,” the judge answered. “Somebody might see that as your right to adequately prepare a defense in your criminal charge. And other people will see it as tailoring. …. It all depends on point of view.”

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